Yves here. UK and Irish readers are welcome to correct me, but my impression, having been a student of English and French history and literature of the Industrial Revolution, that the UK is more open about its hatred of the poors than Americans are. That does not mean the US is any nicer. After all, the UK has the NHS while we have an overpriced health care system that not only does not deliver great outcomes on a population-wide basis but also often generates bankruptcies. The US, after the Civil War, had the debtcropper system, which kept what the British would call smallholders on a borrowing treadmill. As Matt Stoller wrote:
It’s actually baked into our culture. The phrase ‘the man’, as in ‘fight the man’, referred originally to creditors. ‘The man’ in the 19th century stood for ‘furnishing man’, the merchant that sold 19th century sharecroppers and Southern farmers their supplies for the year, usually on credit. Farmers, often illiterate and certainly unable to understand the arrangements into which they were entering, were charged interest rates of 80-100 percent a year, with a lien places on their crops. When approaching a furnishing agent, who could grant them credit for seeds, equipment, even food itself, a farmer would meekly look down nervously as his debts were marked down in a notebook. At the end of a year, due to deflation and usury, farmers usually owed more than they started the year owing. Their land was often forfeit, and eventually most of them became tenant farmers.
They were in hock to the man, and eventually became slaves to him. This structure, of sharecropping and usury, held together by political violence, continued into the 1960s in some areas of the South. As late as the 1960s, Kennedy would see rural poverty in Arkansas and pronounce it ’shocking’. These were the fruits of usury, a society built on unsustainable debt peonage.
But as Kennedy’s reaction indicated, the private sector exploitation of the poor via debt peonage was not visible to most Americans. By contrast, the UK had long had locally-run workhouses dating back to the 1600s to try to contain the cost of caring for the destitute. But the workhouse system took a punitive turn with the 1834 Poor Act, which among other things broke up families that sought relief.
Needless to say, the sophistication of the packaging has increased under neoliberalism, with all sorts of abuse and exploitation justified in the name of the almighty market. Admittedly, this trend has been underway during the modern era. Karl Polyani, in his classic The Great Transformation, described how what he called the market society, with its relentless drive for efficiency and profit, would wreak havoc with the underlying social order. However, regular opposition to the most destructive elements of this “progress” would blunt its effects and give the polity time to adjust.
Again, and readers should feel free to take issue, but the US distances itself from its cruelty, be it cutting the food assistance called SNAP, making it harder to qualify for Medicare, or napalming Laos from on high. At least with its lower orders, the behaviors that Richard Murphy deplores are not just mean-spirited but seem sadistic. Is this a product of the UK’s class system? And has high and rising inequality produced similar conduct in the US, such as due-process-abusing deportations?
By Richard Murphy, Emeritus Professor of Accounting Practice at Sheffield University Management School and a director of Tax Research LLP. Originally published at Funding the Future
The Telegraph says in an email this morning that:
Andy Burnham’s Commons debut as Prime Minister yesterday was overshadowed by a market rout that sent borrowing costs to their highest in decades.
This, of course, is not true. The rise in interest rates was seen around the world and had nothing to do with the arrival of Andy Burnham at the Despatch Box, but the Telegraph will not miss an opportunity to be stupid whenever one is offered, and duly delivered misinformation in a way that has become all its own.
More worrying was the Financial Times’ reaction to yesterday’s rising government bond interest rates around the world, which I see as a sign of a forthcoming financial meltdown. They have published an editorial on this issue today under the headline:
Governments should heed the bond market’s warning
What do they mean? This paragraph summarises their argument:
Governments should resist the temptation for shortcuts. The most sustainable way to reduce the risk of market ructions is to listen to the signals coming from bond investors, not to ignore or suppress them. That means tackling rising welfare and pension costs head-on and resisting giveaways or tax cuts without credible funding plans. Avoiding political pain today will not make the problem disappear, it only stores up instability in bond markets that could force more painful economic choices tomorrow.
Elsewhere, they noted:
Efforts to hold down rates punish savers, complicate the job of central bankers and, crucially, drown out vital price signals and undermine trust in public debt. Whatever tools they use, finance ministries risk fighting wasteful and losing battles with globally interconnected capital markets.
What, then, is their desire? A number can be very clearly identified.
Firstly, they want central banks to be given free rein to raise interest rates as they see fit to fight the inflation that will be created as a consequence of Donald Trump’s war, an energy crisis, drought, El Niño and financial speculation based upon all these things. That is despite the fact that raising interest rates can have no impact whatsoever on inflation arising for these reasons, because that inflation does not reflect excessive demand in an economy, but external price shocks that no one in any one economy can address through interest rate adjustment or any other mechanism. Economic illiteracy is, then, at the heart of the FT’s desire.
Second, their reference to “vital price signals” makes it clear that the FT still believes markets should set government policy, and that democratic governments’ interest in serving their electorates must come second. Autocracy, then, is a key element within FT thinking.
Third, the interests of those with wealth must, according to the FT, come first. They say savers must not be punished, while suggesting that what they describe as rising welfare and pension costs must be tackled head-on. The message is clear. The economy must be organised in the interests of those whom it has already benefited the most, and the interests of those who have suffered the consequences of markets unfairly allocating rewards – as they always do – must be ignored.
Fourth, the FT issues a veiled threat as self-appointed spokesperson for the bond vigilantes. The message is that the markets must not be bucked, and that governments must not interfere or the worst might happen. They choose not to spell out precisely what they mean, other than by suggesting that bond market instability will be created as a result, with the consequence that what they ‘call painful political choices’ will be imposed. These, they imply, will fall on those least able to afford the resulting financial turmoil, whatever politicians might, in the FT’s opinion, foolishly desire.
I quote the FT at length for one very good reason. The analysis it offers is profoundly repugnant, and its own words must be used to show how clearly this is the case.
It is rare that we see a statement as bold as this, making it so clear that those with wealth think that the cost of the economic failure that they themselves are creating as a consequence of the political programmes they support and the erroneous economic beliefs that they hold must be borne by those who have no role in creating the situation we are now facing, and for whom the relative pain will undoubtedly be greatest.
What might be done about this? That is a right question to ask at this moment. A number of obvious answers occurred to me, all of which could be readily enacted.
Firstly, the Bank of England could be told to stop its quantitative tightening programme, which is deliberately designed to fuel this crisis.
Secondly, the government could declare what it already says exists, and call the current economic situation a cost-of-living crisis, and so intervene in Bank of England policy, ordering it to cut rather than increase interest rates at this point in time.
Thirdly, the government could, if it wished, reduce the number of bonds it sells into financial markets when it appears they do not want to buy them. It could do this by cancelling current bond auctions and funding itself through the Bank of England instead. Rationing the supply of new bonds would immediately affect their price and send shockwaves through the market.
Fourthly, the government could suspend its so-called full funding rule. There is no reason why this exists. It is convention alone that requires that the government appear to clear its overdraft with the Bank of England every day by issuing either bonds or Treasury bills, but there is no requirement upon it to do so, and it is time for this nonsense to end.
Fifthly, the government could announce the introduction of tiered interest rate payments on central bank reserve accounts, with the quite deliberate intention of reducing the funding available to commercial banks to dominate London bond markets, whilst making it clear, if they retain their view that books must be balanced (which is another erroneous economic assumption) that they are doing so to protect the interests of the most vulnerable in society.
Sixthly, the government could announce an inquiry into introducing a financial services tax that might include what is called Spahn taxation, which I explain in the linked glossary entry. This is a tax deliberately designed to tackle financial speculation by making it more expensive to undertake.
Seventh, the government could indicate its intention to increase tax rates on unearned income, which the FT policy is deliberately promoting, and on the monopoly profits of banks, which again the FT is seeking to support.
I make all these points for one good reason: to pretend that there is nothing that the government can do in the face of an assault of this sort on the well-being of large numbers of people in the UK so that bankers and the wealthy might benefit should not go without an adequate response, and such a response does exist.
The question is, will this government have the courage to stand up to bankers now when we all know full well that sometime soon they will be coming begging for bailouts as the financial crisis, which the Financial Times is interpreting as one of government funding, but which is actually one of failing neoliberalism, reaches the point where a crash becomes inevitable?
Yesterday and this morning, I noted the FT’s view that the poorest in our society must suffer an income loss to fund the interest they think is rightfully due to savers during these stressful times for the wealthy.
This morning, The Telegraph notes that Kemi Badeoch thinks the poorest amongst us might do even more to fund this country in its time of need. As they report:
Today, Kemi Badenoch, the Conservative Party leader, will set out how she would raise that £10bn. It’s the first time we will hear specifics on how to hit the 3 per cent target of GDP for defence spending by 2030.
It is by slashing the welfare bill, generating £3.1bn by reimposing the two-child benefit cap and saving£1bn by ending VAT exemptions for Motability vehicles, among other policies.
So, now we know. Kemi Badenoch, and no doubt her party, and a great many of its supporters, think that those who must do most to fund this country in its time of need are those who have the least ability to do so.
Children living in poverty must pay.
Those who are utterly dependent upon cars, which are very often adapted to suit their disabilities, must make the sacrifice that this country demands.
And, although we do not know the details yet, I strongly suspect the triple lock will be questioned when it comes to pensions, leaving some of the most vulnerable elderly people in the country even more exposed to economic hardship than they are now.
The logic that underpins this is perverted. I use that word quite deliberately. The proposal being made is sadistic. It is callous. It is intended to create hardship. The gloating, already apparent in the Telegraph’s email, hints at the pleasure being derived from making such suggestions.
Let me put this another way. If there is such a thing as evil, and I think there is, then the comments made yesterday by the FT, and those which it appears Kemi Badenoch will make today, represent that in our current politics. We have come to expect both vileness and viciousness from Reform and Restore, but these sentiments come from a political party that once suggested itself as the representative of ‘One Nation’, and from a newspaper that would like to think itself a pillar of the establishment.
I can safely conclude one thing, and that is that the establishment is rotten.
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